Voice on the Web » Skype Executives

Skype Acquires GroupMe: In Search of the Mobile Shared Communications Experience

Jim Courtney — Mon, 22 Aug 2011 14:58:24 +0000

Since the launch of Skype for iPhone over WiFi connections more than two years ago, Skype has evolved its mobile offerings to add support for calling over 3G and video calling. They have added to the mobile platforms with Skype for Android and Skype for iPad. However, Skype is also recognizing that, while the basic Skype algorithm for text, voice and video conversations certainly has a significant role in mobile communications, users also want to go beyond that basic algorithm with supporting and managing persistent video messaging and group communications.

Skype’s acquisition of Qik and the subsequent offerings on iPhone and Android was the first step in this direction offering not simply live communications but also video messaging and archiving for later recall. Yesterday Skype recognized the potential role of persistent group communications with its acquisition of GroupMe, providing managed and hosted group messaging services on iPhone, Android, BlackBerry and Windows 7 platforms. According to Skype CEO Tony Bates:

The GroupMe team has created an incredibly sticky group messaging experience that works across mobile devices and platforms, making it a perfect addition to our voice, video and text products. We’re excited about introducing their disruptive product to our global user base.

There has been a plethora of text messaging services emerging over the past year or so. Kik Messenger, Beluga and TextMe are three platforms where I installed the application, signed up but have never used it. Why? While initially they are widely praised for their algorithms, the bottom line is the number of users who are actually using it. RIM continues to build a lot of its appeal around BlackBerry Messenger; they have over 40 million accounts.

With Skype’s acquisition, GroupMe will soon have access to over 170 million users (they need to transition from their Twilio backend). Only then will we see if this has become a significant acquisition for Skype.

Skype Performance Update: Interesting Statistics

Jim Courtney — Wed, 27 Jul 2011 12:21:42 +0000

Check out the statistics that arose out of last week’s panel discussion: Skype call information; Skype for TV – coming soon to a family room near you and the change in Skype’s employee per lawyer ratio over the past year.

My previous post, Skype: Evolution from “Wildly Popular and Deeply Troubled”, covered a recent panel discussion, held last week at the Fortune Brainstorm event, on the subject of the transition of Skype as it passed through three owners: eBay –> Silver Lake consortium –-> Microsoft. I highlighted several topics where three key players, including Skype CEO Tony Bates, gave their perspective on why various business decisions were made that resulted in these ownership changes.

But there were also some interesting statistics and other information re Skype’s ongoing operations that came out during the discussion:

Skype released five products over a six week period in June/July this year, more than had been released in the previous two years.
It appears that, while Tony Bates was announced as CEO in early October 2010, he actually started becoming involved with Skype operations in August (an advantage of being a private company – you don’t have to announce key executive changes when they actually occur). This information came out during the discussion about the release date for the Skype for iPhone video calling upgrade .
Skype had over 7 million downloads of Skype for iPhone 3.0 with video calling on its December 30, 2010 release date.
When Tony joined Skype he found as his favorite statistic: “Five people who actually touched product and wrote code for every lawyer in the company.” Today that ratio is now 25:1 and rising, according to Tony’s comment. This explains why several issues have persisted over the years including:

the lack of Skype Online numbers for Canada (which could easily be resolved to address a Canadian regulatory issue),
the delay in releasing Skype for iPhone to Canadians due to an intellectual property issue
the tight credit policies such as the fact that a credit card can only be used with one Skype account. If I want to use a credit card with my wife’s Skype account, I need to use a different credit card.
the constant concern over U.S. regulatory issues as Skype rolls out a Skype for Business program in the U.S.

Skype expects to see “Monthly Active Users” (“MAU’s”) rise to over 200 million by year end from its current 170 million MAU’s in the last quarter.
Skype active users average over 100 minutes of engagement (in a Skype voice or video conversation) per month.
The average video call lasts 27 minutes and is rising; an interesting statistic that helps to confirm what Skype Chief Technology Strategist Jonathan Rosenberg pointed out in his “The Rise of Real Time Social Sharing” presentation at eComm America 2010.
Will Skype be in your family room soon? Skype for TV has already been embedded into over 50 million TV Skype-enabled TV sets (and BluRay players) worldwide, including high end models from Samsung, Panasonic, Sony, Sharp and Vizio.
In spite of the occasional service interruption, over 35% of Skype’s user base is small business that uses Skype as their primary communications service “with the fall-back that the cost piece is so compelling”.

Bottom Line: It’s a bit of a hodge-podge of information but it all contributes to a better understanding of not only how Skype is ending up as an autonomous business division of Microsoft but also what developments are happening on the business side that have contributed to the variety of new products and releases that have appeared over the past six weeks.

Skype CEO Tony Bates talks about making Skype video calling ubiquitous (blogs.skype.com)
Microsoft’s Skype acquisition expected to close by October (winrumors.com)

Skype: Evolution from “Wildly Popular and Deeply Troubled”

Jim Courtney — Sun, 24 Jul 2011 13:05:10 +0000

Over the past six years of covering Skype, there have been three “Masters” – the original founders – Niklas Zennström and Janus Friis (2003 to 2005), eBay (2005 to 2009) and the Silver Lake consortium (2009 to MS acquisition). And, once regulatory approvals and due diligence are completed, Microsoft will become the fourth later this fall.

But we’ve never heard the full background to some of these transitions. We knew there had been a major intellectual property issue – “you can’t drive the car without the engine”; we heard presentations on the Skype business model as Skype was presented to the investment community by eBay. But what happened behind the scenes that resulted in the many business decisions made to justify these ownership changes has never come out as one complete story.

At this past week’s Fortune Brainstorm Tech event in Aspen, a most interesting panel discussion revealed some of the history and reasoning behind this evolution, starting with, on John Donahue’s assumption of the eBay CEO position in 2009, eBay’s decision to “carve out” Skype as a non-core asset. On the Fortune event panel were three key players in this evolution: Skype CEO Tony Bates, Silver Lake Managing Director Egon Durban and Andreesson Horowitz cofounder Ben Horowitz.

It’s most interesting to watch the entire video but some highlights:

Dealing with the dichotomy of a “wildly popular and deeply troubled” company that was in full blown litigation with its founders.
How Skype continues to operate as an independent company and its sole responsibility to Microsoft during the due diligence period leading up to the closing of the Microsoft acquisition, expected in October, 2011
Why Silver Lake, working with Andreesson-Horowitz, was able to execute on the two steps necessary to acquire Skype, in the process rescuing a “terrific asset that continued to perform, [had] fantastic network effects and continued to produce great product” from a “horrible cataclysmic outcome”. But seeing Skype as “resilient notwithstanding”, these investors recognized a unique opportunity that required a unique solution.
- Yet they came up with a solution that would eventually give eBay investors a net gain on their initial 2005 investment in Skype.
The internal Skype business issues that the Silver Lake consortium recognized and why they hired Tony Bates out of a senior executive position at Cisco to take over the reins.
- In the course of this there is a lesson on how a private equity takeover can be highly successful and grow a business built around existing key resources. It’s a stark contrast to the more often publicized “slash-and-burn” approach of many private equity acquisitions where employee and product cuts become the recipe for repackaging a business investment for a subsequent sale.
- There are some interesting comments mentioning one additional key asset, beyond the technology and user base, that made the Skype acquisition a “magical opportunity” when Microsoft was considering the acquisition last spring.
What Tony Bates has done behind the scenes that has resulted in the release of five new products over the past six weeks¹– more than had been released in the previous two years.
- What Tony Bates sees as a bigger revenue opportunity than SkypeOut calling.
How the pending Microsoft acquisition of Skype will result in an entirely new business model for how Microsoft embeds an acquisition into it overall operations.

Bottom line: starting with the Silver Lake consortium acquisition, the Skype business case study is unique in how a wildly popular yet deeply troubled, engineering resource rich company can be converted into a an asset that will continue to be the “gold standard” for worldwide ad hoc communications in both the consumer and small business markets.

Watch the video; it’s a compelling – and revealing – story ….

Fortune: Lessons from Skype

¹Five new products:

Comcast as a new platform for Skype calling
Launch of video on Android phones
SkypeKit public beta launch
Mac 5.2 client announcement (post forthcoming)
Facebook Video Calling

Skype CEO Teases In-Call Ads (mashable.com)
Microsoft expects Skype buyout to close by October (electronista.com)
Skype CEO promises brand will stay intact despite Microsoft acquisition (thenextweb.com)

Microsoft Acquires Skype: What Are the Real Benchmarks?

Jim Courtney — Mon, 20 Jun 2011 18:26:47 +0000

Last month’s announcement of Microsoft’s acquisition of Skype certainly triggered speculation, misplaced blame and other conspiracy theories on the blogosphere. It often sounds like a reporter wants to use Microsoft as the most convenient excuse for a post or article. It’s superficial, to say the least. Until Microsoft completes the acquisition, Skype operates as an independent but fully operational company, complete with warts.

Having participated in the major restructuring of a NASDAQ-listed company (and some subsequent acquisitions) and the acquisition of one of my previous clients by a NASDAQ-listed companies (as well as having supplied due diligence information for acquisitions of some of my previous employers’ customers) I’ve had a chance to walk through these exercises.

This post is simply my perspective on the challenges involved in closing such a deal and the short term benchmarks I am looking for in order to measure the impact of the acquisition.

First, some public facts,

Last fall Skype announced the appointment of Tony Bates as its new CEO. Tony brings many years of business leadership experience with a major (and disruptive) player in the IP-communications space. He has certainly participated in, or been an observer to, some of Cisco’s acquisitions.
Skype signed a long term lease for new office space in Palo Alto and moved there last December.
Skype has been on a hiring spree for the Palo Alto office with respect to product managers and developers/engineers.
On May 10, 2011 Microsoft and Skype announced that Microsoft would be acquiring Skype for $8.5 billion, acquiring a Luxembourg-based company, using cash that Microsoft has kept in Europe (or at least has not repatriated to the U.S.).
Microsoft has built up a significant Bay Area presence at its Mountain View campus and is in the same time zone as Redmond.
Last week the FTC filed a notice of early termination, without comment, effectively announcing there would be no objection on their part to closing of the deal.
Until the deal closes, Skype CEO Tony Bates is and remains in charge, making the key decisions re ongoing business operations; it’s still an independent company reporting to its current investors. (Microsoft could incur legal liability were they to interfere in Skype’s decisions prior to the close.)

Today has seen a plethora of third party posts about executive changes at Skype. However, in the course of an acquisition by a publicly listed company, Skype’s hands are tied by the securities regulators as to what they can say. The only response has been “As part of a recent internal shift, Skype has made some management changes”. On the other hand my first hint of change came when one executive wrote two weeks ago, in his Skype Mood Message, to the effect that he would not be anywhere near Palo Alto at least until August 1.

That indicates he was trying to fix part of the company [that] wasn’t working, rather than a wholesale firing of people who stood to get big payouts.)

Breaking News: Tech Crunch went to the trouble of getting the story right:

We spoke with one [current investor] just now who reiterated what other unnamed investors have said in the press this morning: That the decision was 100% Tony Bates’ call. Until the Microsoft deal closes, he has to run Skype like a stand alone company, and these were all executives he’d been considering firing for performance for some time. The timing had more to do with how long it took to go through the process than anything else, this investor said.

And, he noted, that these were all people on the business side of the house, not the technical side of the house. That indicates he was trying to fix part of the company [that] wasn’t working, rather than a wholesale firing of people who stood to get big payouts.

But I’ve seen all this before at other restructurings and acquisitions. In the course of closing the transaction C-level management figures out – some before the close, some after:

the resources you need and what is duplication, what needs to be merged
- what is critical to maintaining Skype as an independent business unit and the internal business relationship with other Microsoft business operations
- how to maintain a culture that encourages innovation and nurtures employee morale
what policies need to be brought into line with respect to human resources, financial reporting, IT services. marketing and other corporate infrastructure services
performance of due diligence on all contracts, agreements and outstanding legal disputes – this is the most challenging aspect as these will always raise issues that need to be resolved before closing – and
clearing regulatory hurtles. While the U.S. FTC has cleared the transaction, there would have to be some EU regulatory clearance required, given that the actual transaction will occur between a European registered company (Skype LLC) and a European subsidiary of Microsoft.

But overriding through all this is the need to not only continue the Skype business operations but also determine how to put together the team and resources that will grow the business. Of significant importance is ensuring the ongoing business operations – as measured by revenues and expenses – do not impact the initial financial basis for the transaction at the time of close. When I was involved in a restructuring and an acquisition the final question that had to be answered for any of my proposals was the impact on sustaining and growing the business.

In particular, Microsoft CEO Steve Ballmer will be under tremendous pressure to have success with Skype. After all, there is an $8.5 billion investment – the goal has to be both to recover this amount as profits and to generate shareholder return on the investment. This is achieved by not only continuing and enhancing the current user experiences vertically with upgrades and new services but also leveraging Skype technology through horizontal integration into Microsoft Office, Lync, and Windows Live offerings. The bottom line is that any decisions during the transition and going forward will have to provide answers to that ultimate goal. And, if Tony Bates is to remain President of the Skype business unit at Microsoft after the close, he is going to have to live with his decisions during the closing period.

My real short term benchmarks will be Skype’s delivery of new and upgraded products over the next few months. Here’s what’s on the line:

Developing a Skype for Mac 5.x that addresses a plethora of user interface issues, the most important of which is making the user interface consistent with the Skype for Windows 5.x user interface.
- Skype Journal has an update on the Skype for Mac chat style contest.
Evolution of Skype for Windows – beta version 5.5 with deeper FaceBook integration announced this morning.
Launch of Skype for iPad – an iPad-specific version that takes full advantage of the iPad’s display format and iPad 2’s video features – a heavily used Google search keyword is “Skype for iPad” - demonstrating the demand and expectation is there.
Upgrades to Skype for iPhone (restoration of the keypad on Skype-to-Skype calls) and Skype for Android.
Launch of Skype for Windows Mobile 7
Launch of third party applications and hardware that incorporate SkypeKit
Skype for Business customer success stories; we simply have not seen any since the Skype Connect launch last fall.
Actual launch of announced services such as: Go To Meeting integration for collaborative desktop sharing, Skype for TV for Comcast cable customers.

Bottom line: It’s real easy, and naive, to blame Microsoft for recent outages and other Skype service interruptions. When it comes to the Microsoft acquisition of Skype, we are simply going to have to wait out the process – securities regulations place limits on how much information can be made public. Investors and users have to hope the right business decisions are being made during this period; it’s really a matter of C-level management bringing the appropriate skills and experience to the table. This is a situation where trust in the C-level executives to make the right decisions is paramount. In the interim, Skype remains an independent business operation with its CEO in total charge.

But at least the above benchmarks provide some short term benchmarks that are indicators of how Skype will continue to support and upgrade services to its user base. And these benchmarks contribute to passing the ”AmberMac” test.

Update: Shel Israel expresses his perspective in Microsoft Acquires Skype.

Steve Ballmer & Tony Bates Talk About Skype-Microsoft Deal (gigaom.com)

Microsoft Acquires Skype–Steve Ballmer Does Skype Europe

Jim Courtney — Mon, 16 May 2011 10:29:16 +0000

When an acquisition occurs, it’s always a good sign to see that the acquiring CEO is getting around to meet all the employees of the acquired company. When major announcements were being made at my last employer, our first priority was to make sure the employees understood what was being announced, the reasoning behind the announcement and what the implications were for company staff. It’s important to have the team onside right from the beginning.

At Microsoft – Skype Press Conference last Tuesday it was announced that Microsoft CEO Steve Ballmer and Skype CEO Tony Bates, who had already briefed Skype’s employees based in the Palo Alto area, would be touring Skype’s European offices in London, Tallinn (Estonia) and possibly Stockholm and Prague over the past weekend.

Seems like Steve got to check out the Skype phone booth at Tallinn airport on Friday or Saturday:

And that Steve participated in a Sunday morning brunch with some employees according to this Stockholm-based employee’s mood message:

More about the phone booth here. Phil Wolff at Skype Journal has opened a Caption Contest.

Bottom line: the introductions are over; now for the execution. Get ready for the ride.

Thanks to Brian O’Saughnessy, Skype’s Chief Marketing Officer, for the photos.

Steve Ballmer’s email to Microsoft employees about Skype deal (seattletimes.nwsource.com)
Steve Ballmer & Tony Bates Talk About Skype-Microsoft Deal (gigaom.com)
Ballmer’s latest acquisition (mondaynote.com)
Microsoft Acquires Skype – An Investor’s Perspective (voiceontheweb.biz)
Microsoft Acquires Skype – The “Amber Mac Test” (voiceontheweb.biz)
Microsoft Acquires Skype – A Most Interesting Marriage (voiceontheweb.biz)

Tony Bates interview: Geek cred, Cisco lessons, and Skype’s core values

Jim Courtney — Thu, 03 Feb 2011 13:13:00 +0000

Cross-published guest post by Phil Wolff, Editor and Publisher, Skype Journal.

Phil’s interview with Tony provides significant background about what Tony brings to Skype as both his technology expertise and business management experience, the four key values that are the foundation for his leadership focus during his first year as Skype CEO and where he sees Skype moving ahead at a high level.

http://www.youtube.com/watch?v=eXddBMj1N8s

Skype Journal: How did you come by your geek cred?

I was part of the team, the very small team that ran the ARPANET gateways in the UK, I call it the right place at the right time. And my story about how I’m self-taught is that I’m from London and I lived at the end of the Tube line and it took roughly an hour and twenty minutes to come in every day and an hour and twenty minutes to go home. That’s a long time where you’re kinda sitting there and so I immersed myself in manuals and texts. Strange story about that, back in those days, manuals were a lot better then they are today. I self-taught UNIX through basically DEC manuals.

And I really got involved in the infrastructure side of the Internet and so when people say a bit about being a geek, you’re seeing a bunch of RFCs around things like route reflection. Route reflection is an esoteric thing but it’s one of the things along the way that kept the Internet going.

There were some other jobs after that. I helped start RIPE which is the main name registry similar to the Internic and so on. I wasn’t the first guy there but I was like number four and I worked on a thing called a route server. But I always knew I wanted to build product. And so after that I did Internet MCI which is how we transitioned the NSFnet which was a lot of fun and it was all different then. It was when in those days the nexus of the Internet was actually in Virginia, So PSI was there, UUNET was there, Sprint was there, MCI was there. And we actually used to meet, a bunch of kids, geeks and we would actually trade SLA agreements. We would go to the Tortilla Factory once a month and I would buy a circuit, you’d buy a circuit and that was how it worked. And in those days there was no settlement and all the discussions we have today.

But I always kinda felt that the missing thing was how were these things going to evolve and scale.

When I joined Cisco I worked in the CTOs group and we had these guys called “consulting engineers,” very smart people mainly more pragmatists who had been building. And I kinda ended up being the de facto product manager for the high end router space and we were redefining it and there were a lot of people involved. But my first big project was working with a thing called 12000. The twelve-thousand was the real first carrier class box.

And then to cut a long story short so this doesn’t go on forever, the real big thing I got involved in was this thing called the CRS1 and what was brilliant about that was all aspects about building a system: which was hardware; we created this new operating system called IOS XR, which I drove and led and this you know; put it this way, pretty much any time that someone connects to your website you get sent one of these packets, it comes across one of these devices so it’s part of the infrastructure.

And the only other bit that may be relevant for this is that along that way I got really enamored with video. I was asked to integrate Scientific Atlanta because we’d acquired Scientific Atlanta, and now we got bigger and I was general manager and I had most of the carrier business, a big portfolio, and what I loved about the technology was the complexities of it and the complexities of the multiple forms of capture to display. And I also loved the fact that it took me to a place that I hadn’t been before. I had been basically a plumber, I had been selling plumbing, building plumbing. But when we acquired Scientific Atlantic at Cisco, the dialog changed – we now were actually in the home. We were in the ARPU part of their discussion.

And the other thing that happened because of that passion around video and the fact that I had been so focused onto the early generation of the Internet I had the opportunity to be on the board at YouTube. And that was my first real shot into that kind of “consumerland,” consumer Internet. Loved it, it was over before it started, it was great fun. Founders are fantastic people, Chad and Steve. If you ever get a chance to meet them, they’re wonderful guys.

And from there, I was just building my portfolio, growing my leadership, and John Chambers asked me to take on enterprise 18 months ago, and this opportunity came up.

SJ: And out of the all the companies – Why Skype?

Well, it’s a great story. I’m very goal-driven. My wife will tell you that we…

SJ: In terms of personal career goals?

Goals in general. I’m just being very candid. Some career, some material, some more social. I mean, I believe that goals work. I think that it’s a myth that there’s some Harvard study that wasn’t empirical that said that they did a measure of people one year of one graduation class and those who had goals, who had wrote down goals were more successful than those who didn’t write down goals. Now again, goals are different for different people. But three years ago, I wrote down a goal that I would like to be a CEO before I am forty-five and I wrote down three companies and this was one of them.

SJ: Really?

And I’m not telling you who the other two are. But I will tell you is that each one of those was not in the infrastructure system space, was in the consumer internet space, because I think that the consumer internet side is the most disruptive space and continues to be. I was in the transition at Cisco where it was frankly academic-led to enterprise-led and it transitioned to consumer-led and I got to see that.

And the other thing, just for what it’s worth, I hope it doesn’t come across as cheesy, but I’ve been a big user of Skype for a long time and…

SJ: A little cheesy.

Yeah, but let me tell you the story of why it’s less cheesy. When I went to Tallinn. Have you ever spent any time in Estonia?

SJ: No.

You’d love it. Actually, a big part of the history is the disruption of what they’ve done. One of the questions they’ll ask anyone is – how long have you been using Skype? One way you can tell how long someone has been using Skype is asking if you have a unique handle, that maps to their unique handle. My Skype ID is TBates. I started using Skype in March 2004. There’s a great story here. So the guy who runs the database who has all the secrets, Asko, they asked him to run it, cause I was asked this question myself, and the answer came back – he goes wow that’s before I started using it. So yes, you can say that it’s cheesy but the reality of it is that I used it a long time ago.

I met Nicholas a long time ago. I developed an idea of putting p2p inside routing protocols at Cisco. We have a patent on that. And I pitched it to them and they said it wasn’t a great idea. ‘Cause of their core values. So I’ve been involved in that technology.

SJ: Skype vs. Cisco?

Just to give you a perspective, I was at Cisco for 15 years. So I was there when they were kind of in the low billion dollars which is slightly bigger than this and actually it’s kind of interesting, when I came to Skype, there’s a lot of similarities in culture. Right? We can discuss what Cisco is today but back then it was highly product-centric. There was a belief system in this case, that you can kind of equalize the world by making IP the center point of it.

In Skype’s case, it’s saying we’re providing a communications services platform that breaks down barriers on a global basis. And they used a very powerful disruptive technique to do that. One – it’s low cost, but two – it’s highly scalable. And so there are similarities there.

Culturally, there are also similarities, in the early days of Cisco there was a belief system that you could do anything if you had the right talent and the right engineers in place. Now that scales to a certain level and then you have to put processes in and so on. And Skype I think is at a very similar point in its life cycle. So for me, I was sort of lucky enough to go through that, so when you ask what’s the value I can bring, I have been through that.

I think there’s two other pieces which is leadership as you go through these transitions is critical and I learned that from John. And John created a bunch of cultural values that stick with the company. Those values are different, but the importance of those cultural values are very critical as we went through different parts of that long term journey.

And so I am in the process, and it’s an internal thing but I have to share it. It’s sort of establishing a bunch of cultural values that I think are very important to Skype. Different to the ones we had at Cisco. At Cisco we had “Customer Success”: customer is always right, no technology religion, results driven. So there’s a bunch and there’s a badge you get at Cisco.

I’m trying to focus on four key things:

Number one – product engineering led company. The way Skype will be successful is its products must speak for themselves. Its products and its services. And you know, I think we have some wonderful products. I think what we just did with the iPhone launch, just to bring you up to speed, we did the New Year’s Eve event with 11 million – 10 million upgrades, 1 million new users — in less than a week. And just the pure use cases are just unbelievable. And I think why? Because they’re multi-platform and they’re going to lead to more platforms. Just takes it to the next level. So that’s one key thing. But product engineering – that must lead. I don’t want to talk about the past. I want to talk about what I want to do. But that’s number one.

Secondarily, understanding that we’re truly a global company. One of the things that attracts me to Skype is that we were founded in the East. We were founded in Eastern Europe. Maybe we should do this at some point – maybe we should do this at some point, you should come with me; the energy and the way they think about life is just amazing. It’s not just that they disrupt – they see this as a platform that could change the world. Now to change the world you need a big platform. So you have to keep investing and so on.

But we also need to grow. And at some point you have to look at that talent pool and say if you go to Estonia and you get in a cab and you say Skype, you don’t have to say any more. And I’m saying Estonia, I’m not just saying Tallinn. So this is a population thing. So we’re sort of bringing East to West. Now why I like that concept is that we actually have the infrastructure and the capability to do it. The way people use Skype internally is they’ve already embraced “globalization” but not necessarily really realized the full power of it, so that’s number two: Truly global like no one else. Really be a global company. Most global companies today are headquartered in The Valley and they outsource. That’s not what I’m talking about. Completely distribute the company. That’s the second cultural value.

The third one is we’ve got to, one thing that I think is really important is incredible ideas. [And you’ve got some great ideas by the way. And I do want to mention, we are going to take up your Heartbeat idea. I think that’s a good one. Not committing right now! But I absolutely think that heartbeat not a good one right now, we have to put more data and status around it.] There’s probably ten things that you would like to do in the Skype product, probably five or six [of mine] are the same. If you go to Tallinn and you say to them, we should do this, I don’t know: ring tones, as an example, it’s been done. But what happened was for some reason the processes and things to get it to market and really get it to take off, so they just moved on. So cultural concept number 3 is ideas to real users much quicker. And I think I know how to do that. Because I’ve been through that process. Last year I helped develop 400 new products at Cisco. Different types of products Software products as well. Android tablet, business social software, obviously switches and routers and so on, so that I think picking up that pace…

Last one I think is a bit high level, but understanding that the role Skype plays is that we’re in a highly dynamic world, much more dynamic than it used to be. There’s a bit of a sense that it’s static – you win VoIP and then you win the next one. I think all those things are blurring – and so that’s the 4th concept. This notion of dynamics – what’s happening in the marketplace with the competitors and so on, I think we can translate internally and really move much quicker.

SJ: What does Skype need to become?

Look, I think there are a couple things. One is Skype in my opinion is the only truly global communications services company already.

One of the things that’s going to come out tomorrow is a Telegeography report. Wait, let me ask you a question, what do you think the numbers are going to be for 2010?

SJ: For international minutes?

For us, as a percentage of total.

SJ: 16?

25!

SJ: Congratulations.

What’s that really about? That’s still mainly people with good broadband, mainly people in the developed world with PC architectures. You’ve got to move to mobile, you’ve got to get to the third screen, I would say the living room, really. I think the world is made up of three, increasingly, three modalities of input and receive communications. These guys (holding up iPhone) for sure – that wave’s there and we’re in the heart of that right now with what we’re doing with our products. This, and I think the desktop is still a metaphor for what we’re doing – mainly for the web and the browser. And increasingly the living room. And that’s the other thing we’re going to be talking about tomorrow – is continuing partnerships around what we’re doing with TVs, and SkypeKit as a generalized kit can now be put into a lot of different devices.

So when you say what I think we can become, I think we can service a billion people quite candidly. I think offer a rich set of communications services in a way that leads to more wonderful experiences obviously. There are so many stories of the way people use it in terms of whether it’s outreach, in terms of education to kids, and so on or whether you’ve got someone who’s at war trying to get back home.

But I actually think that the broader play for us is that it can also start to become much more useful. The way people collaborate is becoming more video based. It’s much more immersive, people actually want to talk to each other. Customer service, there’s so many different examples of where video will become the next frontier. I think we’re leading in that. But I think we need to be multiplatform. That’s really what we’re doing in the next few years.

Word cloud from transcript via Wordle.

Thanks to Jenifer Caukin, Skype PR, whose voice you’ll hear about two-thirds of the way through the video.

Skype At CES 2011: It’s All About Video and Mobile

Jim Courtney — Sat, 08 Jan 2011 20:38:22 +0000

The opening day of CES 2011 was a banner day for Skype announcements and activity. It started with a morning press conference where new Skype CEO Tony Bates built his message around the themes of “Universal, Useful. Wonderful”:

He covered recent Skype activity and accomplishments:

From the recent Skype outage, they learned much about Skype’s pervasiveness and users’ reliance on Skype as a critical real time communications service in addition to addressing the technical issues that led to the outage.
In its annual report on international long distance minutes by service provider, Telegeography had reported earlier in the day that, in 2010, Skype had increased its market share of international calling minutes from 12% in 2009 to 24.7% in 2010. This represents an average of 520 million minutes per day and over 190 billion minutes for the year.
Video calling has increased to 40% of all calls in 2010.
When Skype for iPhone 3.0 launched last week, it triggered over 4 million downloads on the Apple app store and over 1 million Skype mobile video calls on the first day.

Tony then went on to make some announcements:

Completion of an agreement earlier in the day to acquire Qik, a popular live video streaming service, to complement its video technology resources; from Tony’s blog post linked above:

Skype and Qik share a common purpose of enriching communications with video, and the acquisition of Qik will help to accelerate our leadership in video by adding recording, sharing and storing capabilities to our product portfolio.

Through this acquisition, we’ll also be able to take advantage of the engineering expertise that is behind Qik’s Smart Streaming technology, which optimizes video transmission over wireless networks.
Launch of Group Calling on Skype. Group calling on Skype for Windows 5.1 has gone “Gold”. It’s being offered as part of a Skype Premium offering that includes Live Chat Support for a monthly $8.99 subscription fee (with discounts for 3 and 12 month subscriptions). While group video calling supports up to ten participants on a call, only the call host requires a subscription.
More Skype access from the living room involving Skype for TV becoming available later this year on newly introduced Skype-enabled Sony BRAVIA and VIZIO VIA TV’s; Skype has also announced a partnership with Panasonic and Sony to introduce Skype-enabled Blu-ray Players in the near future.
Opening up SkypeKit beta to any legitimate developer for building third party applications embedding Skype.

Early Thursday afternoon Skype CEO Tony Bates appeared at the Verizon 4GLTE press conference to announce Skype mobile Video that will be appearing within the main feature set of four Android smartphones that will be amongst the initial featured devices supporting Verizon’s new 4G/LTE network. Whereas the current Skype mobile on Verizon uses Skype’s thin-client architecture, the Skype mobile Video will use a true Skype IP client.

For the first time in several years, Skype has a small booth at the rear of the Upper South Hall featuring video calling on iPhones as well as group video calling. But it’s been drawing crowds for the presentations.

Bottom line: speculation can abound as to what new services the Qik acquisition will bring and how they can complement existing Skype services. While the Skype’s user base continues to grow, usage has accelerated significantly when it comes to Skype’s key feature: free international calling. The introduction of a Skype Premium service with a fee encompassing group video calling and live chat support adds the first potentially significant new revenue stream since the launch of Skype Out and Skype Online numbers many years ago. (Coincidental that it comes at the time of filings for a new IPO?)

Note that coincidental with the Group Video calling announcement Skype released Skype for Windows 5.1 that also address a couple of related issues.

Here’s the full morning press conference video:

skype on livestream.com. Broadcast Live Free

TNW Interview with Skype at CES: The next generation of video and why the Kinect is so cool (thenextweb.com)
Skype Buys Qik Mobile Video Streaming Service (pcworld.com)
Skype Soon To Be On Sony BRAVIA and VIZIO VIA TVs (socialtimes.com)
Skype buys Qik mobile video streaming service (macworld.com)
WATCH: Skype To Acquire Qik (huffingtonpost.com)
At CES, Skype gets serious about video with Qik buyout (e27.sg)

Skype IPO: The Real Communications Business Disruption Adventure Begins

Jim Courtney — Mon, 09 Aug 2010 17:37:10 +0000

When I interviewed Skype CEO Josh Silverman at CES 2010 in January, I had asked about the timing for a Skype IPO. Josh’s response:

“We’ll see. We don’t have a timeline for it. Our focus is to build a really great company. When we’re ready and the markets are ready, we’ll consider an IPO. At some point investors will want an exit, of course, but they’ re really taking a long term point-of-view. This is not a quick flip; this is about building one of the great companies of technology.”

Today “long term” was defined as something between nine and fourteen months. Nine months after being taken private by an investment group lead by Silver Lake, Skype announced, through a blog post by Josh Silverman, they had filed a preliminary prospectus for an IPO. With a road show and other pre-IPO activities we’re probably three to five months from seeing the final transaction happen.

The prospectus makes for interesting read about both Skype’s business model and the communications infrastructure transition wrought by new technologies. Key Skype performance data includes:

2010 Jan-Jun revenues of $406.2MM vs same period 2009 of $324.8MM, an increase of 25.1%
“Adjusted” EBITDA increase by 59.3% from $75.2MM to 115.8MM over the same periods
$37MM in capital expenditures budgeted for 2010 vs $13.5MM spent in 2009

and some interesting user data:

One should really think of “Registered Users” as “Registered Accounts”. Especially with Skype for Business becoming more active, there will be a rise in accounts but lots of reasons for stagnant or dead accounts. (Personally I manage, via Skype Manager, over 25 accounts with about 15 users but really only use two of them for my own ongoing activities. The other users were created for one or more business activities and )

Most interesting are the “connected users” numbers, defined as “average monthly number for the three months ended [on] the date [shown on the x-axis]”. While Skype is showing a current number of 124 million“connected users” for the quarter ended Jun30, 2010 Hudson Barton’s “real users” number – which is more an indication of daily users on line is currently running at about 60 million.

The increase in paying users is the most significant number of interest. The prospectus confirms that SkypeOut represents Skype’s number one source of revenue and this number is the best indicator of how quickly these revenues can grow.

One other interesting metric relates to calling minutes, broken down as”

Communications services billing minutes (SkypeOut minutes): from 5.0B in H1 2009 to 6.4B in H1 2010, a 28% increase somewhat consistent with the revenue increase, and
Skype-to-Skype minutes: from 49.1 billion in H1 2009 to 88.4 billion in H1 2010, a 80% increase confirming that “free” really is the key marketing strategy for increasing Skype users and Skype usage.

Bottom line: Skype continues to grow at double digit rates but they are about to enter a phase where marketing activities and business communications services will become vital to sustaining its growth. Yet, regulatory and competitive issues will also become a significant factor and a real test of how willing governments are able to adapt to technological change as opposed to sustaining cost-inefficient legacy telecommunications operations whose fundamental business models are threatened. For the first time, we’ll be able to view quarterly the business success of Skype as an independent business operation.

There’s lots of other interesting marketing information and financial data in the prospectus but that leaves room for additional posts. And the statements re regulatory issues have the makings of several discussions.

Note that while $100MM has been put out as the amount to be raised, it was apparently only used as a metric to assist with determining SEC filing fees. The actual amount to be raised has yet to be announced.

A Conversation with Skype CEO Josh Silverman

Jim Courtney — Mon, 15 Feb 2010 12:00:34 +0000

At last month’s CES I had the opportunity to meet with Skype CEO Josh Silverman and discuss various Skype issues that have arisen over the past year as well as where Skype is headed as a privately owned company. At the time I thought this would result in a normal text-based blog post outlining some of our discussion.

However, when I arrived for the interview I realized it would also be a good occasion to try out the HD video recording feature of a relatively new Canon SD980 camera. Over the past week I have been using a new MacBook’s iMovie and found I could edit it down to a fairly succinct outcome, having eliminated much of my own nervous glitches, personal comments and humming and hawing. Most importantly, Josh makes a much better presenter of Skype’s case than I could ever hope to do in reporting on the interview. The result follows.

In this first portion we talk about

Skype operating as an independent, private company and the role the new board members can play,
the Canada Pension Plan Investment Board’s participation as an investor (full disclosure – about 17 million employed or formerly employed Canadians have an interest in CPPIB investments),
what performance numbers can we expect to see going forward
the prospects for an IPO
what’s on the CEO’s radar as priorities for Skype
what’s going to be available for developer partners

(My apologies to fellow Canadians for not asking about Skype Online numbers in Canada but, given there are regulatory issues involved, I’d probably get the standard “we’d love to do it but…” response. For mention of a Skype service that is being expanded into Canada, see the second portion of the interview with Skype for Mobile VP & GM Russ Shaw.)

In the second portion of the conversation we covered issues such as

the growth of the Skype developer team
Skype’s evolving mobile presence, including Skype for BlackBerry and video calling on mobile devices
the launch of a formal Skype for Business program
Skype’s video calling as a new pop culture
Skype and the broadcast television market

Complementary to the “pop culture” discussion here, at Josh’s keynote presentation to the CES Innovation Leaders dinner, he spoke about how Skype video calling has brought to consumers the most effective realization of AT&T’s 1964 World’s Fair video calling vision where they introduced a very primitive video calling setup.

Bottom line: what can we expect to see from Skype in 2010?

a revitalized developer program built around a more comprehensive platform from which developers can, amongst other features, embed Skype into their applications
Skype access on many more mobile platforms as well as taking advantage of wireless carriers’ recognition of Skype as a mainstream telecommunications environment
expansion of video calling services, including a strong role in the introduction of Internet services as a feature on a new generation of television sets;
launch of a formal comprehensive Skype for Business program targeted at small-to-medium businesses
many more Skype video interviews on broadcast media – for example, Skype video (and voice) calling has been used quite extensively by several networks to facilitate communications with Haiti following the earthquake

This is the third of three Skype executive interviews that took place at CES 2010; the others:

Skype for Mobile: An Interview with Skype’s Russ Shaw

Jim Courtney — Tue, 09 Feb 2010 15:52:02 +0000

At CES 2010 last month I had the opportunity to record interviews with Skype CEO Josh Silverman as well as Russ Shaw, Vice President and General Manager of Skype Mobile and EMEA, and Matt Jordan, Enterprise Business Development Manager.

In this second interview Russ Shaw covers a wide range of questions about Skype on different mobile phones, the business model that complements wireless carriers’ goals and other challenges as Skype executes on its mobile component of “Skype Everywhere”.

In the first segment Russ discusses revenues from Skype for Mobile activities, execution on the Nokia agreement and the Sony Xperia, the challenges of working in the mobile ecosystem and carrier partnerships. Russ emphasizes that Skype for Mobile’s main goal is to get usage on as many mobile devices as possible as part of the Skype Everywhere goal.

In the second segment Russ discusses Skype for BlackBerry (announced last spring but still running a beta trial), their learnings from the beta and how to ensure a positive user experience. He then goes on to explain how Skype can provide a carrier partnership business model that, based on Skype’s experience with 3, can be a complement that builds a wireless carrier’s overall business. He then provides an analogy of how O2 used a freemium model to build their business around free offerings of music; free Skype-to-Skype calling is the basis of a freemium model for carriers. We go on to discuss Skype for Android in the next segment. This is followed by asking Russ to sum up what’s ahead for Skype on mobile smartphones.

But then I ask one closing question that would really support “Skype Everywhere” in a very common user situation; I can only supplement the discussion by pointing out that, when I get into my car, a Bluetooth-enabled BlackBerry is on my belt (with my Otter Box Defender case). And, during the discussion, Canadians will learn about one more Skype service coming soon to Canada.

Bottom line: Is 2010 the year we can access our Skype contacts worldwide from the majority of smartphones? How many carriers will really catch onto the “3” business model and adopt Skype as a formal offering? And will I be able to get into my car and simply say: “Call Russ Shaw on Skype” to make a hands-free Skype call from my mobile smartphone?

Update: As mentioned above Russ talks about the success with 3 using Skype and the Skypephone. Just prior to posting I learned that 3 has now logged 1 billion minutes of Skype-to-Skype calling. In their summary notes 3 states also that “Over 2m people use internet services like Skype on 3” out of their 4 million active UK customers. (BTW, this is not the only story I have heard about how Skype is helping to maintain communications with Haiti; I have seen a few Skype video calls as television interviews as well; probably makes for another story.)

Of interest: Russ has authored an article at Connect World, Mobile operators should co-operate with application and content providers to take advantage of the mobile Internet boom, where he discusses the issue of mobile operators working with VoIP providers to build their overall business where he supports the success with 3:

There is already some evidence that the entire discussion is based on a misconception, and that, in reality, using the Internet to make calls does not cannibalize the revenues of operators. Some operators, like Three in the UK, have already changed their business model. They are challenging their competitors by partnering with a software company, offering a popular application that allows mobile VoIP calls at no extra cost, providing their customers with a very tangible extra value and comprehensive user experience by integrating the application into a range of mobile handsets. As a result, the group of customers using these services generate 20 per cent higher margins than non-users, voice revenue being a key contribution to this. A survey undertaken in August 2009 revealed that users of this application used on average 17 percent more traditional voice minutes than non-users. Next to this, a comparatively lower churn rate and higher ARPU (average revenue per user) was one of the positive outcomes as well. [Author's bolds]

Other Skype executive interviews from CES 2010:

IM+ for Skype Brings Free VoIP Calling to BlackBerry (geardiary.com
Skype to BlackBerry users: Sit tight (download.cnet.com)
Google’s Android mobile operating system will become the second most-popular (robbiz1978.blogspot.com)
Skype on iPhone may signal end of voice plans (cbc.ca)
Reprise: Is WiFi Becoming the Unregulated Stealth Carrier of the Future? (voiceontheweb.biz)
iotum’s Calliflower Conference Call Service Adds Skype Access (voiceontheweb.biz)
Traveling in a Bipolar Mobile Mode (voiceontheweb.biz)
Skype for iPhone: Now Legally Available for Canadians (voiceontheweb.biz)
History Making Smartphone Skype Call During LeWeb Closing Session (voiceontheweb.biz)

Skype for Business: An Interview with Skype’s Matt Jordan

Jim Courtney — Fri, 05 Feb 2010 22:45:28 +0000

In this first interview Matt Jordan talks about the evolving Skype for Business Program. After giving an overview of the program, Matt talks about the revamped Business Control Panel (“BCP”) and how it allows an administrator to manage Skype usage across an enterprise.

While some of the BCP discussion gets a bit technical he does cover issues of security and management of individual Skype activities (such as file transfer). BCP also facilitates delegation of Skype credits for making SkypeOut calls, setting up Skype online numbers, using Skype for SIP voice channels and Skype Access. Fundamentally BCP is a central tool from which an administrator can manage the spend, report on the spend and receive call detail reports.

In the second part of the interview, Matt talks about the business model behind Skype for Business, the charges associated with using Skype for Business services. He talks about Maxim Integrated Products and how they use Skype and BCP for over 2000 paid users within an ecosystem of 5000 Skype users in 70 countries.

Matt goes on to provide some initial feedback on the Skype for SIP public beta program as well as Skype for Asterisk.

Businesses adopting the recently announced FREETALK Connect PBX will need a SkypeID generated via the Business Control Panel as their PBX identifier. In addition a FREETALK Connect administrator can then use the BCP to manage Skype credits allocation, security issues and reporting. Calls coming into a FREETALK Connect PBX via a Skype online number or Skype itself continue have no charge as well as outbound calls to a Skype user.

The entire Skype for Business program will roll out over the next few months such that by the time summer arrives all the various features should be widely available. FREETALK Connect should be available on the Skype Store at the beginning of April.

Other Skype executive interviews from CES 2010:

Full disclosure: In Store Solutions, producer of the FREETALK Connect PBX, has become a client of Denali InterConneXions, publisher of Voice On The Web, building on the author’s previous business development experience with establishing partnerships that can assist with the promotion of a primary vendor’s offerings. A more complete statement will follow shortly.

FREETALK Connect, the worlds first Skype-enabled Unified Communications system. (saunderslog.com)
Business Long Distance: Death By a Million PBX’s, Part II (voiceontheweb.biz)
Skype Security: Is It Safe for Business? (computerworld.com)
Skype for SIP could save businesses big bucks (thenextweb.com)
FREETALK Connect Alliance: Partners for Enhancing the Platform (voiceontheweb.biz)
FREETALK Connect ecosystem forms (saunderslog.com)
iotum’s Calliflower Conference Call Service Adds Skype Access (voiceontheweb.biz)
Skype for Asterisk Release Marries Skype Calling into Popular Asterisk PBX Platform (voiceontheweb.biz)

The Skype Spinout Version 2.0

Jim Courtney — Mon, 09 Nov 2009 16:12:42 +0000

So it’s finally resolved. The Skype spinout from eBay will involve Skype’s founders as investors and board members while contributing a cash investment. Skype finally owns the core intellectual property required for Skype to operate at its current cost levels. eBay gets the cash they were looking for but 5% less of the new Skype. Canadians still get to invest $16.75 each through the government operated Canada Pension Plan. Marc Andreesen gets involved with another major Internet play. Mike Volpi and Index Ventures are out of the picture. Lawyers and consultants are probably heftily rewarded for all the litigation activity leading to the final resolution. Incessant speculation on Skype Journal’s Skype 5.x Public Chat about how to get around JoltID’s Global Index software will finally cease (well, maybe).

While I have put links to several posts leading up to the resolution below it has been most interesting to read various bloggers comments on the resolution and the future direction for Skype:

Phil Wolff at Skype Journal sums up the numbers in his post, Sold! The Bullets and values the JoltID intellectual property at $275 million. (Phil gets credit for the graphic above, by the way.)

Om picks the winners and losers on My Thoughts on the Skype Settlement: Winners & Losers Scorecard. He points out the “great spin quote” from Silver Lake as a leftover from the “PR spin” days prior to the transparency that comes with social networking. Come on, guys. We’ve all seen the depositions and emails. As for the future, Om comments:

No Silver Lining?: One person who I totally feel for is Silverman, the current CEO of Skype. He gets to run a company which will have the looming presence of its founders.

Whatever the press spin might say, the new investor group is like a poisoned well. It will be a polarized group, always looking over their shoulders. Silverman is going to need to keep a lot of people happy, and those board meetings with nearly two-dozen people aren’t going to be fun, either. But as Biggie Small once said:

“It’s like the more money we come across, the more problems we see.”

Both Kara Swisher at All Things Digital, in All Is Forgiven: “It’s a Clean Slate,” Says Andreessen About Lawsuit-Mad Skype Co-Founders, and Dan Primack at PEHub, in 5 Skype Questions for Marc Andreessen, interviewed Marc Andreeson of Andreeson Horowitz. The common statement about his relationship with Niklas and Janus:

We have not been in business with them before, so we don’t have any baggage at all. Our view is that they’re two super-creative founders. We’ve known lots of legendary founders, and they are all different and have things that make them unique. We include ourselves in that from past experiences. We view ourselves as a pro-founder firm, so we like the idea of founders being involved. It’s a net positive.

Martin Varsavsky. CEO of FON, a company partially financed by many of the same players in the Skype sale, restricts his comments to his thoughts on the future of Skype – where is Skype vulnerable?, where are its strengths? – in Why it may make sense to buy Skype back. His overriding statement:

Skype is simple. Michael Arrington and all of Silicon Valley may find Google Voice amazing but is the average global citizen ready to use it? Massively use it? You download Skype, you find your friends on Skype, you talk. And, if you don’t find them, you Skype out. And when you talk you can also do video. I LOVE video calls on Skype. I used to use them for people I really cared about, relatives, close friends. Now I even do business calls on video with Skype. It just gives you more of a sense of what is going through the other person´s mind. And Skype is the leader on video quality. So simplicity plus video may be a good way to beat flat plans from telcos and avoid being Tivoed. If the video services can migrate to mobile phones Skype is on to something.

Andy Abramson, in The Skype Suit Is Settled-Now Business Can Get On, comments:

I’m just glad the suit is settled between eBay and Skype. Now a lot of things that have been held back can finally move forward. In many ways the settlement is a good thing. The return of the original founders means disruption will continue, and new ideas will flourish. It also means Skype as a business or brand will now have a chance to prove its worth.

Alec Saunders, in eBay’s big mistake; Why the JoltID license was inevitable, concludes:

The lesson in all this? Deals involving technology licenses and acquisitions are common in business. When acquiring a technology asset, buyers must acquire the necessary control needed in order to protect the business. Either buy, or license in perpetuity, what you need to prosper. Unless your intent is to immediately begin work on a substitute technology, a license for core technology that needs renewal is a sure way to find yourself caught by the short-hairs in a future negotiation.

The bottom line is that Skype is now in a position to focus on building future communications software and services without the distraction of depositions, legal wrangling and media curiosity. Provided he can navigate through a 23-member board with diverse interests and experiences, Josh Silverman can build the real communications software business of providing infrastructure for conversations while having a wealth of technology and business connections available in an advisory role.

Om’s trail:

Skype, Founders Settlement in the Works (Nov. 1)
Further Details Emerge As Skype & Its Founders Close to Settlement (Nov. 3)
Skype Founders Fight Their Way Into the New Skype (Nov. 5)
My Thoughts on the Skype Settlement: Winners & Losers Scorecard (Nov. 6)

Kara Swisher (All Things Digital):

Volpi and Index Ventures Out of Skype Deal, the Lawsuit-Happy Founder Twins In (Nov. 3 with lots of links to related stories)
I Love the Smell of Settlement in the Morning: Skype Founders Set to Get 10 Percent, Option to Buy Three Percent More and Two Board Seats (Nov. 3)
All Is Forgiven: “It’s a Clean Slate,” Says Andreessen About Lawsuit-Mad Skype Co-Founders (Nov. 6)

Skype soap opera ends as founders set to regain stake ahead of $2B sale (dailyfinance.com)
Lessons From the War Over Skype (bits.blogs.nytimes.com)
Skype Cofounders Will Be Part Of Buyout Group; Index Ventures Is Out (paidcontent.org)
Skype Founders Re-Found in Settlement (marketingpilgrim.com)
Skype founders win back share (guardian.co.uk)
Andreessen On Skype: “This Is One Of The Most Important Companies On the Internet.” (techcrunch.com)
eBay’s Skype sale gets go-ahead with settlement (news.cnet.com)
Confirmed: Skype Founders Settle With eBay And Others, Get 14% Stake In Skype, Not 10% (techcrunch.com)
Skype Settlement: Zennström And Friis Have Won It Again (paidcontent.org)
17 Million Canadians Will Have an Interest in Skype’s Success (voiceontheweb.biz)

eBay CEO: “This deal’s going to close..”

Jim Courtney — Fri, 25 Sep 2009 23:45:23 +0000

While participating in an interview session earlier today at the National Retail Federation’s annual Shop.org summit in Las Vegas, eBay CEO closed off questioning about the pending sale of Skype with “… there’s nothing new on that; this deal’s going to close.” AuctionByte’s Ina Steiner put out this video on her post, eBay CEO: Skype Deal Will Happen, Open to PayPal Spin-Off:

The Cy.Talk blog, in eBay CEO says Skype deal “is going to close”, reports:

Backstage after the presentation, Donahoe showed Reuters an excerpt of an email message he received that morning from eBay Chief Financial Officer Bob Swan saying no “show stoppers” were identified in the recent spate of litigation.

“We’re marching along,” Donahoe said, adding that he still expects the deal to close in mid-November.

Bottom line: It ain’t over til it’s over, but ….

Joost sues Mike Volpi and Index Ventures over theft of information used in Skype bid (venturebeat.com)
The Plot Thickens: Skype Founders And Joost Sue Former Chairman And CEO Mike Volpi (techcrunch.com)
eBay chief says Skype deal ‘is going to close’ (financialpost.com)

Demythifying the Skype Developer Story

Jim Courtney — Sun, 13 Sep 2009 18:28:15 +0000

On Friday the Skype Developer Blog posted a blog announcing the end of the Skype Extras program in what amounts to two stages:

Immediately: No new partner programs or upgrades will be placed into the Skype Extras
Going forward: Skype Extras will remain available via the Skype for Windows client until their certification expires (which may be up to a year).

Effectively, Skype has admitted that the Skype Extras program has not been a great success as a marketing tool. “Despite the incredible breadth of Extras developed for Skype, simply not enough people were using them to justify our continued support of the Extras programme.”

However, as indicated by a Skype Software Partner’s tweet above, Skype’s developer support will be continuing. Why?

In the same announcement, it was stated that the Skype Public API’s and their documentation remain available; more importantly, it was stated that “Skype will continue to support accessories via the Public API.”

But the uniformed media fallout has been attempting to put “doom and gloom” for Skype developer activities going forward. However, had Skype personnel worked with their PR agency who has been very adept at educating both mainstream media and bloggers with the background on Skype announcements, this “doom and gloom” cloud could have been avoided. (No press release was issued; so we have to assume Skype’s PR agency was not consulted.) Some of this “missing” information is in my recent post: “Skype Extras” Is Dead; Long Live the Skype API’s!.

Here are some of the myths that have resulted along with some of the facts that dispel them:

Myth: GigaOm: Skype kills its developer ecosystem: While it is true that “if you put your lot with Skype then you are on your own” for the marketing aspect of a software partner’s offering, the Skype API’s are not going away. And Skype is finally reviewing how it can work best with developers. Some considerations:

Last fall, Skype announced the appointment of Daniel Berg as Chief Technology Officer. In the spring they announced the appointment of former Counterpath CTO Jason Fischl as Director of Developer Relations heading up the Skype Developer Program. Maybe their silence to date says something about their evaluation of the previous Skype developer activity and their need to take time to articulate an overall Skype platform within which the Skype SDK and Skype API’s will be playing a role. Most importantly, my network’s jungle drums say they are still very active within Skype.
Check out this job opening for a Platform Release Manager that starts out with “You will be responsible for planning and releasing each new version of the Skype SDK used as part of the upcoming Platform strategy.”
The Skype post itself ended with: “we still believe there are opportunities for third-party developers to enhance the Skype experience”.

As implied in the OnState tweet above, and confirmed by my own conversations with other Skype partners, we should be looking forward to new enhancements to the Skype Developer Program and the Skype SDK. But maybe Skype should have filled in media and bloggers with this information via their PR network instead of bluntly announcing the end of a support program with no offsetting information.

Myth: Skype is eating its software partners. Andy Abramson, VoIP Watch, Skype Shutting Down Extras Program: “Skype will begin offering more services that are labelled as Skype vs from third parties”. What this really should read is:

Skype will begin offering more services expanding on its core “conversation” technology expertise and will be looking to third parties to complement their core services by incorporating Skype into offerings that leverage the individual partners’ unique expertise.

For instance:

Skype for Asterisk (developed by Skype partner Digium) and Skype for SIP will be integrating Skype’s calling and presence functionality into “legacy” platforms as they evolve the Skype for Business program. Expect to hear more at Christopher Dean’s talk at Fall VON next week in Miami.
As initially indentified by Phil, the Skype Jobs listings include some for a new “Skype Labs” location:

Skype Labs is a new R&D center located in the Bay Area focused on next generation technologies for Skype which will be applicable over the next one to five years. The initial areas of work will include security, signaling and call control for audio, video and presence, p2p and collaboration.
However, OnState brings decades of call center experience into their Call Center – an application for which Skype has neither the experience nor bandwidth to develop. (Full disclosure: the author is involved with a new small business that will be using OnState’s Call Center as a paying customer.)
PamFax brings a simple five or six step process for sending faxes worldwide from any PC. Having followed the development of this service over the past two years, they have built a system that solves the basic faxing problem in a user friendly, yet highly secure, manner. Once again Skype has neither the expertise nor bandwidth to address this issue. (And Scendix, PamFax’s developer who was the only third party using Skype Credits to any extent, has already made plans for other payment services when they launched version 2.0 last spring).
Looking at Skype Jobs, one finds the engineering jobs are focused on evolving Skype’s core functionality: video codecs, video QA engineer, audio components, director of mobile engineering, etc.
The Product Manager – Applications job description includes responsibility for:
- Extras like call recording and faxing. (Is Skype going to make an offer for veteran Skype software partner Scendix?)
- Partner integrations with CRM, Security, Collaboration and similar applications (insert Call Center here).

Bottom line:

Recent Skype successes include their High Quality Video (nobody has duplicated their ability to do VGA-standard video calling over standard broadband connections) and the SILK codec for higher quality Skype-to-Skype voice calling.
Expect a multi-party video conferencing service, improved audio and video services and hardware (for instance, finding partners such as client In Store Solutions whose FREETALK Everyman headset addresses an identified end user issue with respect to call quality in a user-friendly way).
Skype will continue to seek out partners, such as Scendix (Pamela and PamFax), Digium, Skylook (CRM), OnState and InnerPass (document management), who incorporate Skype into a range of business services where the partner has significant expertise that can complement Skype’s core conversation technologies via their API’s (both existing and future).
Skype’s current Partners are seeing business success:
- Unyte and VAPPS have been acquired by IBM’s Lotus Sametime Division and Citrix Online respectively
- OnState is finding its Call Center offering stealthing into larger enterprises due to not only its feature set but also its cost saving
- PamFax 2.0 has been a most successful launch; Pamela 4.6 was recently launched with video recording.
- InnerPass has had over 1 million version 1.0 downloads since January. Watch this space for future announcements.
Statements to the effect that “Skype is abandoning/axing its developer partners” are a myth; once more it’s a case of Skype’s managing their communications onto the blogger space. Memo to Skype: Work with your PR agency (who has done an excellent job over the past two years) and the complete message can get out.

Question: What should Skype really be doing for developer support programs going forward? A recent TechCrunch post by Michael Arrington, some of Andy’s other comments and some comments in Skype Journal’s Skype 5.x Public Chat (Phil’s rushing it – this was the Skype 4.x Public Chat until a week ago) provide some hints. A post will follow.

P.S. – Do you have communications technology and/or marketing experience? It seems like Skype is doing its part to stimulate the economy. Check out the Skype Job Vacancies page where, today, over 60 job openings are listed (some listings are actually for multiple hires).

Skype closes its Extras program for developers (infoworld.com)
Skype Pulls Plug On Third-Party Extras Program (paidcontent.org)
Skype retiring third-party Extras (download.cnet.com)
Skype killing off Extras, developer program (downloadsquad.com)
Skype retiring third-party Extras (news.cnet.com)
Skype Shuts Down Extras and Its Developer Program (readwriteweb.com)
Skype: No More Extras! (mashable.com)
Skype’s Stefan Öberg @ Interop: Stealthing Skype Into Business, But Cover the Entire Skype Ecosystem (voiceontheweb.biz)
Stealthing Skype into Larger Businesses (voiceontheweb.biz)
Skype for Asterisk Release Marries Skype Calling into Popular Asterisk PBX Platform (voiceontheweb.biz)

17 Million Canadians Will Have an Interest in Skype’s Success

Jim Courtney — Wed, 02 Sep 2009 13:03:31 +0000

OK, now I have your attention with a headline different from the “Skype sold for $2.75 billion” headlines so rampant in the blogosphere yesterday….

By now the web has been saturated with stories about yesterday’s announcement of the forthcoming acquisition of a 65% controlling interest in Skype by a consortium of investors, led by SilverLake Management LLC and including a $300MM infusion from the Canada Pension Plan Investment Board. At this point the main story is “old” news but a few comments:

Who is Canada Pension Plan Investment Board?

Since 1965 every employed Canadian contributes a % of their employment income (up to an annual income cap of about $37,000) to the Canada Pension Plan (“CPP”). Between the age of 60 and 65 qualifying Canadians can elect to receive a (taxable) monthly payment from this plan until death along with a “death benefit” to the deceased’s estate. The Canada Pension Plan Investment Board …

… is a professional investment management organization based in Toronto. Our purpose is to invest the assets of the Canada Pension Plan in a way that maximizes returns without undue risk of loss. The CPP Fund is $116.6 billion. Canada’s Chief Actuary estimates that CPP contributions will exceed annual benefits paid through to the end of 2019. Thereafter a portion of the CPP Fund’s investment income would be needed to help pay CPP benefits.

Over 17 million Canadians currently participate in the Canada Pension Plan either as contributors or recipients. So we each effectively have a $16.75 investment in Skype.

And Canada, with its own geographical challenge of servicing a market where 90% of the population lives within 160 km (100 miles) of the 6,000 km (4,000 mile) long Canada-US border, continues its long history of having an interest in communications innovation.

Why was there no Skype-eBay synergy?

Meg Whitman made the same mistake I witnessed at a previous employer where the CEO and Board bought up companies but never got “buy-in” within the acquiring company of any major acquisition that required a rethinking of the overall company business focus and execution.

As a result there were no internal champions within eBay for executing on the stated intentions of the Skype acquisition. And the statements of the day demonstrated that eBay senior executives (and Board) did not understand a basic principle of auctions – there is no role for “conversational negotiations” during an auction; this is critical to maintaining the integrity of the auction process. You see the goods and make a decision as to whether or not you want them badly enough to pay the final auction price; the auction process itself is the “negotiation” of a price. Bidders have no opportunity (and do not want) to communicate with sellers; the auctioneer (in this case eBay) is simply a neutral third party who moderates the transaction to establish a price.

Why is eBay still an investor?

Back in the spring when a potential IPO was announced, we learned that eBay expected to continue to have a minority interest in Skype. With a $1.9 million cash infusion and a remaining 35% interest, eBay can still hope to recover, over time, the approximately $3+ billion it has to date spent on the Skype investment four years ago. At the same time it allows eBay executives to focus totally on getting their struggling “markets” business back into a growth mode.

With this strategy eBay can assuage Om’s concerns in Skype Sale Nears: Why eBay Shareholders Should Be Mad. As a sequel, once the sale was confirmed, Om states:

So Donahue gets to say that he got the higher valuation of Skype, got rid of a potential legal nightmare and can get any upside that comes with the initial public offering of the stock. Seems like a win-win, but that IPO — don’t count on it. To be honest, this deal makes much more sense compared to all the rumors that were floating around earlier. [My italics]

What are the positives about the acquisition?

#1 – Keeping the current executive management team. In his eighteen months as President of Skype, Josh Silverman has brought a lot of business process and experience into the company with the result that business processes and programs are being built to build sustainable and increasing revenue streams. Two recent examples of this are the availability of the FREETALK Everyman headset designed to improve the user calling experience at a very low cost and yesterday’s launch of Skype for Asterisk. Expect much more activity and announcements along these lines of building a stronger Skype ecosystem during the fall. This momentum can only be sustained with a continuation of the current executive team. Skype needs to focus on execution at this point; it does not need any further high level restructuring activity to distract from execution.

Two statements confirm this is the case:

Josh’s own post, A new chapter, concludes describing “a new group of owners who believe passionately in our mission and in the ability of our team to deliver on it”.
Egon Durban, Managing Director at SilverLake, states: “Josh Silverman has done a strong job leading the company and we look forward to working with Josh and his team to grow the Skype franchise.”

While there are some “technology heavyweights” becoming involved as investors, the real challenge is to build an effective and synergistic relationship between those “heavyweights” (who will probably become board members and/or advisors) and the current management team. This is where corporate culture and value sets, as established at the executive level, can play a strong role in leaving individual managers the freedom to execute on their goals most effectively.

What are the gotcha’s?

Resolution of the patent dispute with JoltID. No deal would have been done without some understanding of the part of the new investors of the outstanding issues and prospects for how this issue can be resolved. On the other hand, with the experience of the various new investors, many heads can be brought into the negotiation of a resolution. My take: this will never reach the High Court trial scheduled for next spring.
Why the $125 million note? My guess: it’s escrow funds to cover costs arising with any litigation issues that may arise in closing the deal. Is a first guestimate of a settlement with JoltiID in the range of $100MM? Can Skype develop a replacement for JoltID’s infrastructure technology so critical to Skype’s business model for under $125MM? Again from Om:

If you think about it, what Donahoe just did was follow the golden rule of business: If you’ve got a problem, make it someone else’s problem. And the problem for the new buyers is that the legal issues of Skype are not going away. Some of my smart friends think that Skype can sidestep these problems by switching to a SIP-based infrastructure, but I won’t hold my breath.

Any SIP-based infrastructure would sharply increase the need for building a massive global infrastructure. It would also mean working with partners (that make Skype devices) to re-configure their products and getting 400 million-plus users to switch to a massive new model. In other words — like skating in the middle of a semi-frozen lake underneath a brightly shining sun.
Employee motivation: what will be the stock option opportunities for employees now that Skype has effectively gone private?
Financial reporting news: by effectively going private, Skype also has no investor reporting obligations. On the other hand if these investors intend to exit via an IPO in a couple of years, they must provide some level of financial reporting. (By being a minority investor, eBay no longer needs to report on its Skype investment any more that it does on its craigslist investment.)

What do Canadians want?

Now that 17 million Canadians have an investment in Skype can we expect to get;

Skype Online numbers? Canada’s 911 regulations provide a roadblock. (Note to CRTC – when lightning struck my home’s Rogers and Bell communications lines two weeks ago, for four days Skype was my only landline service.)
Skype for iPhone? Requires resolution of a G729 codec patent issue. (Sorry folks, it’s not a Rogers issue.)
Skype for BlackBerry? Given that Research in Motion has become Canada’s leading technology company.

Bottom Line: With this acquisition Skype is finally free of what Andy Abramson describes as “an extremely conservative, bank-like culture”. Yes, Andy, “Skype is about the democratization of voice”; I would extend this to say that “Skype is about the democratization of conversations – whether voice, chat and video”. I certainly look forward to innovation and a much stronger Skype ecosystem as a result of this change of ownership.

Other posts of note:

Omar El Akkad provides a great summary overview in today’s Globe and Mail: EBay hangs up on Skype Strategy.
Globe and Mail Report on Business: What is Skype and Why is it important?
Om Malik on GigaOm: Skype Sold for $2.75 Billion
Andy Abramson at VoIP Watch: (after the announcement) Skype Sold, JoltID Suit Still Remains In Place As of Now; (adding to speculation prior to the announcement) Is Skype in Play?
Update Sept. 4: Dan York, on returning from IT Expo adds his comments in Onward the disruption – Skype’s sale to private investors is a great step; includes Phil Wolff’s Skype Journal graphic showing the ownership post-acquisition based on Om’s reported numbers.

And previous Voice On The Web Posts;

Skype sold: it’s all about risk mitigation. (saunderslog.com)
EBay’s Statement Announcing Skype Deal (blogs.wsj.com)
The Skype sale: Hot Buzz and No Response (skypejournal.com)
Skype – eBay: Passive Separation (voiceontheweb.biz)
Stealthing Skype into Larger Businesses (voiceontheweb.biz)

Skype’s Stefan Öberg @ Interop: Stealthing Skype Into Business, But Cover the Entire Skype Ecosystem

Jim Courtney — Wed, 27 May 2009 10:43:23 +0000

Stefan Öberg, Vice-President, Skype for Business, provided his overview on “the future of modern business communications” at Interop last week. He started off by outlining his perspective on how consumer adoption of Skype is building business adoption from consumer experience; he feels this is driven by:

- Economy: 43% percent of knowledge workers in US enterprises with 500 or more employees already use non-company-owned equipment on enterprise networks and systems.
- Connectivity: We live in a world with an increasingly ubiquitous, pervasive and affordable communications infrastructure, which encourages new acquisition and delivery models, especially those using the web.
- New technology: A combination of affordable devices, low-cost communications, widespread ownership means that access to and acceptance of new technologies is growing.
- Employees: Employees bring their experiences and expectations from the ‘real world’ into the work environment – this is particularly relevant when considering an increasing population of digital natives in the workforce.

Recently Voice On The Web has reported on a couple of examples of this trend:

Stefan went on to provide some statistics coming out of user studies carried out last year:

20% of our users make Skype video calls for business purposes †

95% say they are saving money *

62% say they communicate better with customers using Skype *

70% say they are using it while traveling on business *

80% say they are seeing increased productivity *

* Source: Skype user study of 4,000 users in the US, UK and China conducted in March 2008
† Source: Results from a December 2008 online survey of 2452 active Skype users in the US and UK

Stefan makes some good points, supporting more quantitatively what we have suspected about perceptions of Skype use in business.

However, when he went on to talk about Skype’s expanding ecosystem via Skype for Asterisk and Skype for SIP for penetrating the business market, his brief mention of business infrastructure for Skype (including the Business Control Panel) neglected the services provided by several of Skype’s Software Partners on which Voice On The Web has reported in the past:

OnState: Virtual Call Center and Virtual PBX
Managed Collaboration:
- InnerPass: Team building that Integrates Skype with business grade document management
- Yugma: desktop sharing across Mac and Windows platforms
- Lotus Live Unyte: the pioneer in business grade desktop sharing using Skype
- HiDef Conferencing (now Citrix Online Audio Services Group): a high quality, managed conference calling service
PamFax: converting your PC into a worldwide accessible fax machine
Pamela: a comprehensive Skype utility for call management, conversation archiving, personalizing conversations and a bit of fun
Skylook: combining Skype with Outlook to deliver effective, yet low cost, customer relationship management; turning Outlook into a conversation manager and archive
Evoca: hosted voice recording for building audience engagement and participation across news services, television documentaries and websites or weblogs (a description and review of Evoca’s new Express services is in preparation).
(and, if I have missed any Skype Software partner with a business application, add a comment and I’ll update)

Bottom line: While certainly Skype for Asterisk and Skype for SIP will expand the reach and promotion of Skype through their respective distribution channels (Digium/Asterisk ecosystem and PBX vendors), ongoing innovation is also occurring and being adopted in the Skype Software Partner ecosystem. The current economic conditions are accelerating adoption of these conversation management services as businesses, whether entrepreneurial SMB’s or business units of larger enterprises, search out ways to grow their business but at significantly lower costs. More examples of Skype Everywhere driving business model disruption.

Stealthing Skype into Larger Businesses (voiceontheweb.biz)
OnState Upgrades On Demand Call Center and Virtual PBX (voiceontheweb.biz)
Business Long Distance: Death by 1,000,000 PBX’s (voiceontheweb.biz)
Skype Opens Up To SIP, Finally Eyes Enterprise Customers The Way It Should (techcrunch.com)
Skype For SIP: Big Money, Skypeless, Brand Destroyer (skypejournal.com)
Skype targets businesses with new service (news.cnet.com)
Skype For SIP: Sorting Through the Issues (voiceontheweb.biz)
Skype Modifies Fair Usage Policy (voiceontheweb.biz)

Skype Business Model Revealed at eBay Analyst Event

Jim Courtney — Thu, 12 Mar 2009 12:06:36 +0000

Yesterday eBay held an analyst event at its San Jose headquarters location with a keynote by eBay CEO John Donahoe followed by presentations by various eBay executives and Skype President Josh Silverman.

Josh’s presentation broke a lot of new ground for Skype addressing issues such as:

How does Skype generate revenue?
What drives Skype’s cost model?
How will a software company change real time communications in ways that legacy telcos cannot?
How is Skype structured to address its various market opportunities?

In a long-term financial outlook issued by eBay in conjunction with this event, they state:

Skype is expected to more than double its revenue to over $1.0 billion in 2011. With more than 400 million registered users currently, Skype’s metrics continue to accelerate as the company further establishes leadership in free and paid Internet-based voice and video communications, with growth opportunities in core consumer, mobile, businesses and platform. Skype’s leadership position has strengthened over the past year, driven by a new management team and the launch of many innovative products.

The overriding aspect of Josh’s presentation was repeated emphasis that, fundamentally, Skype is a software company. As verified by many of the presentations at eComm 2009 last week, Josh stated that there is a communications paradigm shift going on where hardwired networks and devices are gradually being replaced by software-based networks and flexible devices. Skype’s “opportunity is to become the world’s leading communications software company.” Josh’s analogy: It was not the railways that invented air travel; in a similar manner, software will drive the future of real time communications innovation and efficiencies going forward, not the existing telcos. To reinforce his point, Skype will not simply be on familiar telephony devices, it will show up in intelligent TV sets, car dashboards and intelligent public access terminals such as bank ATM’s all tied to a common network.

Josh continued: Communications is no longer just about voice; it’s now multi-modal: mood messages, chat, voice calling, multi-party calling, video calling (did I also hear him mention multi-party video calling?) and online screen sharing. Where and how we communicate is expanding: laptop, mobile phone, flat panel TV’s – “any connected computing device with the addition of software becomes a communication device”.

He went on: With hardware and network access becoming a commodity, the opportunity for margin is to capture it at the application layer. Software companies will drive the innovation in the industry, drive the demand for new hardware and better access. (Did he effectively read from the Voice 2.0 Manifesto?) Solutions must be device and network agnostic.

How big is the market? The $300B EBITDA of the $1.4T communication industry revenue is almost equal to the total revenue of global ecommerce and Search.

How did Skype build its business last year? Inherent reliability; it “just works”. While so much of Skype’s operating environment stands outside Skype’s control, yet Skype must try to provide the ability, through its software, to readily adapt to these conditions, especially at the user end point.

How does Skype make money?

From user services:
- What’s free (at no cost to Skype)? Skype-to-Skype calling, video calling, Chat/IM, Multi-Party calling, File Transfer
- What’s Paid? Subscriptions (unlimited calling), SkypeOut (pay-as-you-go), Online Numbers, Voicemail, SMS
From a partner perspective, licensing opportunities. The Skype-Nokia and Skype-MySpace relationships are two examples. Hardware royalties are another source. Carrier relationships, such as the 3 Skypephone example discussed below, are a third source for what are effectively licensing revenues.
The third leg of revenue generation comprises some advertising opportunities that have arisen.

Yet Skype has inherent fundamentals that have made it profitable for the past six quarters:

negligible customer acquisition costs (mostly word-of-mouth; compare with Vonage whose customer acquisition costs are in excess of $250)
negligible capital expenditures and network maintenance costs (being peer-to-peer it’s Skype’s users who invest in capital items, such as PC’s, routers and Skype hardware, and in network maintenance through their Internet subscriptions)
pre-funded accounts which result in negative working capital where subscriptions and Skype credits are paid up front but the revenue is recognized on a pro-rated quarterly basis (Have you ever noticed there’s no “phone bill” sent for payment once a month? – Skype has no collection costs)
strong free cash flow conversion ($1.00 of EBITDA for Skype is almost $1.00 of free cash flow)

The results: Skype’s profitability has grown to the point where they achieve 20% “segment margin” an amount that Skype contributes to eBay’s overall profitability (segment margin makes no allowance for allocation of eBay corporate costs).

Additional data provided:

Skype continues to add over 350,000 new account registrations per day
account registrations are distributed geographically as shown on the map to the right; he labelled North America as a “developing” market with rapid growth
A year ago Skype celebrated support of over 100B cumulative calling minutes since its launch; in 2009 Skype expects to do this same number within the year
Over 8% of the world’s international calling minutes are on Skype
from December 2007 to December 2008, video calls increased from 27% to 34% of calls
due to its peer-to-peer architecture only Skype can deliver a video experience for free, and at performance levels unequalled elsewhere.
while active users rose 39% in Q4 2008, engagement, defined as ‘calling minutes per active user’, rose by 72%
while calls under 2 minutes duration dropped from 41% to 33% comparing October 2007 to October 2008, calls in excess of 10 minutes rose from 37% of calls to 47%. Josh attributed this to higher reliability and call quality.
small changes make a huge difference:
- increasing penetration of paid products by 1% brings in $60MM of additional revenue
- to be a billion dollar business, Skype needs its existing paying users to make just one more call per day
Skype’s marketing approach was to drive awareness through embedding Skype into the “popular culture”, where it has been used on Oprah, Who Wants to Be a Millionaire?, CNN and other news reports.

Going forward Josh talked about three markets where Skype has barely scratched the surface: core consumer (size: $240B), mobile (size: $603B), and business (size: $203B).

For the consumer market, Skype has four approaches:

continue driving new users (by building “communities” or leveraging social networks)
better promote its paid products (make it obvious, upon registration, where paid products can be found – not buried three levels deep in the “My Account” tab)
increase revenue per paying user (encourage adoption of revenue services based on calling patterns; continued focus )
monetize free users via advertising (but be smart about it, do it tastefully and carefully all the while protecting the core business)

[Author’s note: Execution on the last will be interesting, given some experience with “free” voice services that have attempted to “blatantly” introduce advertising into calls themselves.]

Josh went on to discuss mobile, but that’s the subject of a separate post. However, take a look at the Skypephone on 3 success story:

Over 500,000 units have been sold; this generates a monthly revenue stream to Skype
3’s margin on Skypephone is 20% higher than their average margin across all handsets
79% of Skypephone customers are new 3 customers

As for Skype’s business offering:

35% of users use Skype primarily, or often, for business
adoption into business often grows out of individual employees using Skype to call friends and family when on the road, start using Skype for multi-party calls, do video calls with customers and vendors
leads to a call to Skype from IT managers who are getting pressure from their colleagues’ experiences (and, by the way, you can charge for it)
needs to expand from being a product to being a solution that fits with other PBX and software solutions they are already working with
create the infrastructure required to provide service and support services (revenue opportunity)
build out a channel that reaches out to businesses that are familiar with dealing with VAR’s

Going forward:

Act 1: (completed) one platform (PC’s), one revenue stream (SkypeOut), one market segment (long distance calling), one primary service (voice), one primary market (mature Internet markets – Europe and Asia) and one target user (consumers)
Act 2: (now to 2011) is about “Many” – many platforms (PC, mobile, TV, web), diversified revenue streams (subscriptions, licensing, advertising), including business subscriptions; many conversation modes (voice, video, chat, collaboration tools), many regions and many target markets
Act3: (2012 and beyond) “Any” – any mode, any platform, anywhere, multiple market segments, established products, regional ubiquity and mature target markets.

Josh’s forecast for 2011:

More than double revenue in excess of $1B annually
Maintain segment margins of 18% to 20%
More diversified revenue streams: telecom, service and licensing fees, advertising)

His summary:

Accelerating growth, outstanding fundamentals
Attacking an enormous opportunity and positioned to win
Business is getting stronger

Bottom line: For the first time a CxO level Skype executive has put out an extended set of benchmarks and guidelines against which their activities can be measured by all; the challenge now lies in the execution. And analysts finally get a more detailed view into this “mysterious” and oft-questioned Skype acquisition by eBay in 2005.

The audio recording and complete sides can be found for 30 days: click here and then select “Analyst Coverage” in the left sidebar. (viewer registration and Windows Media Player or Real Audio Player required). Or go directly to this link. Josh’s portion starts at 2:37:15 into the recording.

Nokia to preload Skype onto handsets beginning in Q3 (mobilecrunch.com)
eBay: Good in Parts (readwriteweb.com)
Is Skype for sale? (news.cnet.com)

Skype COO Scott Durchslag Outlines Skype’s Mobile Strategy

Jim Courtney — Thu, 19 Feb 2009 04:20:15 +0000

At this year’s CES 2009 Skype press conference, COO Scott Durchslag provided an overview of Skype Everywhere (or Skype Wherever Whenever). Basically Skype is looking to become installed wherever there is a communications device with embedded intelligence (processor and memory) and an Internet connection capability. Along with the announcement yesterday of the new Skype – Nokia partnership, Scott put up a post on the Share Skype Blog that outlines the three components of Skype’s strategy for mobile devices:

Current users: Make Skype available for consumers to download onto their existing mobile handsets. Skype Lite is architected for incorporation into any of over 100 Java-enabled handsets, including any supporting Google Android. In discussing Skype for Windows Mobile, Scott mentions that SMS messaging and File Transfer are being integrated into the forthcoming Skype for Windows Mobile 3.0.
Smartphone manufacturers: Develop partnerships with smartphone manufacturers “tightly integrate and pre-install Skype on their devices”. Skypephone and INQ are two existing examples; the Skype – Nokia partnership announced earlier this week is the next step. These phones will be targeted to consumers who may never have attempted to use a computer to connect to the Internet. But it requires simplicity and a familiar algorithm in the user interface:
- Find a number in the device’s native address book, click on the green “Call” button, the party is called transparently over Skype. If the call is to a Skype contact anywhere worldwide there is no additional cost; if to the PSTN, SkypeOut charges will apply at a minimum.
- But these phones are also capable of supporting Skype IM’s presence information and chat conversations worldwide.
Carriers: The Skyephone relationship with Hutcheson 3, using embedded iSkoot firmware, has certainly been a success. Most importantly, its “free calling” marketing campaign has certainly helped 3 acquire new users who previously would never have thought of getting such a smartphone, even if it has a limited feature set (relative to, say, iPhone, BlackBerry or Android). From the Skype Lite announcement at CES it is apparent that Skype is developing relationships with carriers in at least ten other countries, including the U.S. But details of the specific carrier relationships have yet to be announced.

Many of these services involve using the data network for Skype IM and call setup while using the robust and readily scalable GSM voice channel for voice conversations. Other issues that will provide market differentiation include:

keyboard: QWERTY or T9? this makes a huge difference as to how much Skype IM will be used.
display size: how readily and effectively can the device display Internet-originated content?
battery life: will there still be enough battery life after a day of work to enjoy an evening of entertainment without a recharge?
overall user interface: bottom line for the user experience – how readily can I get access to the services I want, using a familiar calling algorithm?

And all this leads to “What is the business model for Skype”? That will be the subject of another post.

Skype Integration On Handsets: Threat Or Opportunity For Mobile VoIP Startups? (techcrunch.com)
In An Effort To Become Ubiquitous, Skype Partners with Nokia (skypejournal.com)
Nokia to preload Skype onto handsets beginning in Q3 (mobilecrunch.com)

Skype COO Outlines Skype’s Software Guidelines

Jim Courtney — Fri, 16 Jan 2009 20:27:49 +0000

During our conversations with Skype COO Scott Durchslag last week at CES, Scott outlined Skype’s criteria for its software development going forward.

First was the emphasis on “liquid communications” through statements such as “Skype Whenever, Wherever”. Just as today you can pick up any PC or mobile platform and find all the Google Tools (Search, Maps, News, Reader, etc.) Skype wants to be on virtually any platform or device.

Pick up a smartphone, find the Skype button. Turn on the TV, find a Skype button, have a conversation. Open a web browser; start a Skype session. All this to complement Skype on the desktop. Today, besides on the desktop, you can find Skype on over 200 mobile phone handsets, several (Sony) mobile devices, Skypephone and Apple TV. But Scott emphasized, this is only the beginning. It will only start to get real when we see Skype on higher profile devices such as the iPhone and BlackBerry or when we start to see Skype seriously back into the hardware device business with vendors such as Philips and iPevo.

Then Scott outlined four benchmark criteria that every implementation of a Skype on any platform or device must meet:

High call quality
Simple and easy user interface
Consideration for battery life
Security

Last week’s hotfix upgrade of Skype for Windows 4 beta 3 included the first implementation of Skype’s three year effort to develop the SILK codec, increasing the audio bandwidth to 12 KHz while effectively reducing the Internet bandwidth consumed during a Skype call.

A key reason for Skype’s rapid and widespread adoption has been associated with its ease-of-use. Yet Scott says the Skype conversation user experience needs to be even easier to encourage adoption by a broader user base. Developing a more effective user interface has certainly been a focus of the Skype for Windows 4 beta program. At the Skype CES press conference Scott reported that, in a recent survey of users, 88% preferred the new UI to the previous Skype for Windows 3.8. But I’m still wondering if the Skype for Windows team could take a look at Skype for Mac and implement a “drawer” type interface to manage and select the active conversation. For the longer term evolution of Skype clients hopefully Skype also has a look at Dan York’s post on Skype’s fragmented product strategy.

Battery life on smartphones was a key issue that prevented Truphone, who uses a native VoIP client for calls over WiFi, from launching a native VoIP smartphone client running over 3G networks. Instead they launched Truphone Anywhere that takes advantage of the underlying network 3G GSM voice channel and uses the data channel to set up a call via a server that, in turn, sets up a VoIP client. That voice channel tends to make much less use of the device battery than a constantly compressing/decompressing VoIP client that devours the underlying processor activity. Addressing the battery life issue is a major reason why we see Skype using a similar calling architecture when launching the Skype Lite Java client on over 100 Java-enabled cell phones, including those based on Google Android.

Security is an issue that I’ll leave to Dan York and others who are able to cover this issue more knowledgeably and effectively. Suffice it to say that we would expect security to continue to be a feature of all Skype products, including those that use the mobile voice channel for placing calls from mobile phones.

Two take-aways from these statements:

Fundamentally we should expect Skype, going forward, to be a provider of real time conversation-enabling software on desktop, web, TV and mobile platforms. To use an old telegraphy term: Full Stop! For instance, rather than developing their own social network, we should expect Skype to seek out agreements with other social network service providers, such as the MySpace agreement. Skype is an enabler of real time conversations; it is not in the community building or social networking business. Facebook, Twitter and MySpace, amongst others have already captured that space and done an excellent job at it.
These benchmarks also provide a basis not only for deciding what product offerings Skype will develop but also when they are in a position to release a product.

The new Skype executive team is finally starting to set some benchmarks and guidelines against which we can not only measure executed performance but also have a better understanding of where Skype wants to go.

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Skype at CES 2009, Part II: An Overview and Observations

Jim Courtney — Tue, 13 Jan 2009 19:24:01 +0000

There’s a “new sheriff in town” when it come to running Skype; CES 2009 was a “coming out” event for the new executive team.

CES 2009 provided an opportunity to catch up personally with many of the vendors we have covered in Skype Journal including Skype, Truphone, SlingMedia, Philips and Research in Motion (BlackBerry). I also had a chance to attend a most informative afternoon session of Jeff Pulver’s Social Media Jungle event. Unfortunately Palm closed their suite after only two days of CES; thus, I missed an opportunity to learn more about the Palm Pre on Saturday. As Palm had just been awarded a CES “Best of Show” award, that was a “Huh?” moment when there was only a security guard at the suite’s door.. I also wanted to catch iPevo and Nokia but did not have time to get to their booths.

With respect to Skype we had three activities: the Skype press conference, an interview with new COO Scott Durchslag and Skype’s first reception event Friday evening. It was our first opportunity to observe the new Skype executive team in action. While I will be providing some more detailed posts, here are a few observations:

For the first time, a senior C-level Skype executive personally acknowledged Skype Journal’s participation as a playing a significant role in the Skype ecosystem. Scott thanked us for our loyalty to Skype through all the challenges of the past two years. (That does not mean we’ll always be cheerleaders; it’s important that we maintain a skeptical and critical viewpoint within the context of the overall IP-based communications space.)

While we have had co-operation in the past, usually via Skype’s public relations agency, from many Skype employees at an operating level, it’s important for the media to be able to communicate regularly and openly with those at the C-level who are providing overall direction and developing high level strategy. Josh has initiated such openness through his blogging and interviews; now we are seeing it on a person-to-person basis..

On the other hand many times, last week in both the press conference and our discussions, Scott acknowledged the existence of several previous controversial issues, such as technical support, platform development, the role of partners and internal management structure issues as requiring attention by the new management team. The newly recruited management team will be introducing a new level of experience and maturity to address these issues; execution over the next few months now becomes critical.
One future post will cover Skype’s new operating and management structure focused on products and geographical markets.
Another will cover Skype’s overall focus as a software platform developer and the standards being set for these developments. Within this context I’ll provide my perspective on what is meant by “liquid communications”.
We’ll soon have a follow up post about our discussion with Scott of what Skype’s new executive team learned from the TOM-Skype privacy breach last fall and how it became a bonding exercise within Skype as well as establishing some new operating parameters to avoid a repeat.
Skype is NOT shoving its partners under the bus. The new executive team is determining what innovation Skype will drive and what innovation they can expect partners to drive. Andy Abramson articulates his perspective on the issue:

Most of all, Skype is not sitting back. The are pushing the envelope, but at the same time sending mixed messages externally to partners and developers. But that too will change. Some recent hires have brought maturity to the table.

We learned the answer to “Will There Be a Skype Client on the iPhone?”
Finally, for the first time since I have been writing about Skype, we can see some well-articulated high level vision for where Skype is heading, where they need to focus and how they want to play in the real time communications market space at a strategic level.

Looking forward to writing about the evolution of Skype as it grows from a $500MM per year operation with 500 employees into a business with a revenue level and valuation that finally justifies eBay’s initial investment in Skype.

Voice on the Web » Skype Executives

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